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Case Study: Building a Robust Hiring Framework for PE-Owned Companies—A&D Portco I, II, and III

Written By: Gerald O’Dwyer IIThe PE Guru — Blackmore Partners, Inc | December 11th, 2024

Introduction: The Challenge of Finding Leadership Aligned with PE Goals

For private equity (PE) firms, hiring executive leadership is one of the most critical decisions in driving value creation and achieving a successful exit. This case study highlights the structured hiring approach used across three aerospace and defense (A&D) portfolio companies—Portco I, II, and III. It showcases how to align leadership selection with the investment thesis and lifecycle needs, using scenario-based screening and trade-off testing to ensure the right fit.

Step 1: Begin with the Investment Thesis

Defining the Investment Thesis

Each A&D Portco was acquired as part of a buy-and-build strategy focused on consolidating fragmented operations and achieving synergies. While the end goal—a scalable, profitable exit—was consistent, each portco had distinct challenges and requirements at different stages of the PE lifecycle:

  • Portco I (Stabilization): Immediate need to stabilize operations, unify systems, and professionalize leadership.
  • Portco II (Integration): Focused on integrating multiple acquisitions and aligning disparate operations under one cohesive strategy.
  • Portco III (Scaling for Exit): Preparing for growth, scaling efficiently, and driving recurring revenue to de-risk the exit.

Key Metrics to Support the Exit

The hiring process began with data mining to identify the metrics that aligned with the exit thesis for each portco:

  1. EBITDA Margin Growth: 15–20% improvement across all companies.
  2. Operational Efficiencies: Reduction in costs through lean manufacturing and shared services.
  3. Revenue Stability: Increase in recurring revenue through multi-year contracts.
  4. Customer Concentration: Diversification to mitigate risk and improve valuation.

Step 2: Build a Tailored Candidate Funnel

To find leaders who could address these challenges and align with the PE lifecycle, BlackmoreConnects developed a candidate funnel based on a multi-gate screening process.

Developing a Detailed Questionnaire

The questionnaire was designed to test each candidate’s experience and approach to leadership challenges under different current states:
1. Stabilization (Portco I)

  • Have you led stabilization efforts in fragmented organizations?
  • Share examples of improving EBITDA by addressing immediate inefficiencies.
  • How have you professionalized teams transitioning from a family-owned to a corporate structure?

2. Integration (Portco II)

  • Describe your experience leading ERP or CRM integrations across multi-site operations.
  • How have you approached aligning cultural and operational differences post-acquisition?
  • Provide an example of realizing cost savings through operational synergies.

3. Scaling for Exit (Portco III)

  • What strategies have you implemented to create sticky, recurring revenue streams?
  • Share an example of optimizing a business for a successful sale or IPO.
  • How have you balanced growth investments with maintaining profitability?

Candidate Screening Workflow

  1. Initial Screening: Review resumes and questionnaires to assess alignment with the thesis.
  2. 1–2 Hour Call: Drill down on measurable examples to validate that “past proves present.”
  3. Scenario-Based Testing: Engage candidates in role-specific challenges to evaluate decision-making and trade-off strategies.

Step 3: Engage Candidates with Scenario-Based Testing

To ensure candidates could navigate complex challenges, BlackmoreConnects presented tailored scenarios based on each portco’s needs. Candidates were asked to walk through their thought processes, focusing on trade-offs and metrics-driven solutions.

Scenario 1: Stabilization (Portco I)

Challenge: The company operates on fragmented systems and lacks standardized processes, causing inefficiencies and slow decision-making.
Desired State: Stabilized operations with unified systems, immediate EBITDA improvement, and a professionalized leadership team.

Candidate Engagement Questions:

  1. What would be your first steps in identifying and addressing inefficiencies?
  2. How would you prioritize system unification while maintaining operational continuity?
  3. What trade-offs between speed and cost would you consider in your approach?

Scenario 2: Integration (Portco II)

Challenge: Post-acquisition, the company is struggling to integrate disparate operations and realize expected synergies.
Desired State: A fully integrated organization with aligned systems, cultures, and operational processes.

Candidate Engagement Questions:

  1. Describe your approach to managing post-acquisition cultural alignment.
  2. How would you achieve synergy realization while maintaining team morale?
  3. What metrics would you use to measure success throughout the integration process?

Scenario 3: Scaling for Exit (Portco III)

Challenge: The company is preparing for exit and needs to scale efficiently while reducing risks related to customer concentration and revenue volatility.
Desired State: A scalable business with recurring revenue streams, diversified customers, and an optimized cost structure.

Candidate Engagement Questions:

  1. How would you approach transitioning the company’s revenue model to more recurring streams?
  2. What strategies would you use to diversify the customer base within a 12-month timeframe?
  3. What risks would you anticipate, and how would you mitigate them?

Step 4: Evaluating Candidates’ Trade-Off Thinking

A critical part of the process involved assessing how candidates handled trade-offs. The goal was to determine whether they could balance competing priorities while maintaining focus on the long-term exit strategy.

Example Trade-Off Assessment

Scenario: The company needs to reduce costs by 15% to improve EBITDA but risks impacting product quality.

  • Assessment Criteria:
    • Did the candidate identify potential risks and mitigation strategies?
    • How effectively did they balance cost reduction with maintaining customer satisfaction?
    • Did their solution align with the broader investment thesis?

Outcomes and Success Metrics

Through this structured process, BlackmoreConnects helped the PE firm hire leaders for each portco who delivered measurable results:

  • Portco I: The new COO stabilized operations within six months, reducing costs by 20% and increasing EBITDA by 10%.
  • Portco II: The CEO integrated three acquisitions, achieving $2M in synergies within the first year.
  • Portco III: The SVP of Sales transitioned 60% of revenue to multi-year contracts, improving revenue stability and de-risking the exit.

Conclusion: A Model for PE Hiring Success

This case study highlights the importance of aligning the hiring process with the PE lifecycle, using detailed screening tools, scenario-based testing, and trade-off assessments. By starting with the investment thesis and building a tailored funnel, PE firms can ensure they hire leaders who not only meet today’s challenges but also drive long-term value creation.

For access to proven tools, templates, and frameworks to optimize your hiring process, contact [email protected]. BlackmoreConnects specializes in helping PE firms find the right leadership to deliver exceptional exits.